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Crucial ESM court hearing set to start this coming Tuesday

October 21, 2012 by namawinelake

“It’s high time that we brought democracy and transparency to Europe – the fight’s not over yet” Deputy Thomas Pringle in July 2012 when the Irish Supreme Court referred to the European courts, three issues in his bid to stop the European Stability Mechanism

The European Stability Mechanism (ESM) was finally launched on 8th October, after two legal challenges – one in Germany, one in Ireland – both failed. However, whilst the bid by Donegal South-West TD, Thomas Pringle (pictured above) at Ireland’s High Court and subsequently, Supreme Court, failed to stop the launch of the ESM, his challenge still has the potential to put an end to the scheme, at least for now. The Supreme Court in Ireland referred a number of matters to Europe’s highest court, the Court of Justice of the EU (CJEU) in Luxembourg, and the oral hearing is set to commence this Tuesday on 23rdOctober, 2012. Whilst the hearing will not stop the scheduled payment of €258m into the scheme by Ireland tomorrow, the hearing does have the potential to stop the ESM in its tracks if the Court ultimately decides the manner in which the ESM has been created is incompatible with EU law. The Supreme Court in Ireland thought the matters were sufficiently arguable and legally feasible to allow it to refer these matters to Europe where they have been fast-tracked, though the Irish Supreme Court did not grant Deputy Pringle his request for an injunction halting progress of the ESM pending the ultimate outcome of the court hearings. This blogpost examines the issues, and will be the flagship blogpost on the subject with updates posted as the case progresses. The three matters which the Supreme Court in Ireland has referred to the CJEU are: 1. Is the ESM Treaty compatible with the EU Treaties? 2. Is the related decision by heads of government to amend the EU Treaties legally valid? 3. Can the ESM come into operation before the EU Treaty amendment comes into force (1st January 2013 at earliest)? Deputy Thomas Pringle has said he welcomes the fast-tracked hearing which will start on Tuesday and has said “I welcome the decision of the CJEU to use the accelerated procedure available to it to allow for an oral hearing in October. This shows that the Court recognises the urgency of this matter and its utmost importance to all EU states involved, including Ireland.” Deputy Pringle has stressed the potential exposure to Ireland of membership of the ESM. We seem to have formed the impression that money in the ESM will flow in only one direction to Ireland – that’s wrong, tomorrow €258m is set to be paid into the fund by Ireland and this will grow to over €1.25bn in the next 18 months. And the ESM commits us to pay in a maximum of €11bn to the scheme should things really get out of hand in Europe, and worse, the ESM allows itself the freedom to increase the uppermost cap. Though the hope here was that the ESM would be a backstop source of cheap funding when our IMF/EU programme expires at the end of 2013, tere is risk to Ireland from the ESM – it is not a one-way bet. Should Deputy Pringle be successful there will be an urgent need for European leaders to devise a lawful bailout mechanism, and you never know, we might have to have a new referendum in Ireland to approve such a mechanism. You can read the Irish Supreme Court decisions here and here. You can read the flagship blogpost on the High Court and Supreme Court hearings here. There will be updates here on the progress of the case.

via Crucial ESM court hearing set to start this coming Tuesday « NAMA Wine Lake.

via Crucial ESM court hearing set to start this coming Tuesday « NAMA Wine Lake.

Merkel delivers big setback to Kenny’s debt relief hopes

GERMAN CHANCELLOR Angela Merkel has upended a carefully crafted plan to resolve Europe’s banking crisis, delivering a sharp setback to Taoiseach Enda Kenny as he battles for a debt relief deal.

Moments after Mr Kenny declared in Brussels that he had achieved solid progress overnight at a tense EU summit, Dr Merkel moved abruptly to curtail the scope of the effort to break the link between bank and sovereign debt.

The chancellor’s intervention, which took high-level EU figures by surprise, has cast a new cloud of uncertainty over the feasibility of Mr Kenny’s demands.

For the first time in public, she backed her finance minister Wolfgang Schäuble in his assertion that national bodies must remain responsible for most banking debts.

This is markedly at odds with the push from Mr Kenny and the leaders of France, Italy and Spain for the European Stability Mechanism bailout fund to pay for historic banking losses.

The question of who takes responsibility for “legacy” banking debts has emerged as one the most sensitive issues to be settled in complex talks on the recapitalisation of stricken banks by the ESM.

Although EU leaders decided at the summit to farm out this discussion to euro zone finance ministers, Dr Merkel pre-empted these talks even though the EU leaders did not address this question at the summit.

Their focus had been on fixing a January 1st deadline for a legal agreement on new powers for the European Central Bank to supervise commercial banks, a precondition for direct ESM aid to banks.

This was a “very progressive” step forward, Mr Kenny told reporters. “So that’s good news from that point of view for Ireland and for Europe.”

It was only shortly afterwards, in a briefing room down the corridor from where Mr Kenny held his own press conference, that Dr Merkel spoke.

Answering a reporter’s question about the possibility that any ESM rescue of Spain’s banks would damage her re-election campaign next year, she ruled out the fund taking on retrospective liabilities.

“I hadn’t even thought of the elections before hearing such ideas here. The capital needs of Spanish banks have just been evaluated and a programme for their recapitalisation has been agreed,” she said.

Spain only needs to ask for the tranches of funds. There will be no retroactive direct recapitalisation, either.” These remarks were immediately seen as an implicit rebuff to the demands of Mr Kenny and his supporters for a mutualisation of banking debt.

A German government spokesman in Berlin later said her remarks were simply a reiteration of the current legal position and that there was nothing new in them; they were not about Ireland.

In Dublin, the Government spokesman also sought to play down the significance of her remarks.

“We understand that Chancellor Merkel was asked a direct question about the recapitalisation of Spanish banks and she replied in that context,” he said. His statement also noted that the pledge by EU leaders to sever the loop between bank and sovereign debt still stands.

The possibility of the ESM paying for existing bank debts is crucial for Spain, given fears that its banking crisis could overwhelm the government of premier Mariano Rajoy.

This, in turn, has prompted anxiety in France and Italy that any escalation of the Spanish banking emergency would affect them.

Top-ranked French officials said the notion of the ESM taking on historic debt was seriously in play in the wake of the summit. “The discussion we must have is to guarantee the retroactive effect of this, which is very important vis-à-vis the markets. It will take some time – weeks or months,” a senior Elysée figure said.

“It’s important to reflect on the stability of the euro zone and how to deal with this historic problem.”

via Merkel delivers big setback to Kenny’s debt relief hopes – The Irish Times – Sat, Oct 20, 2012.

via Merkel delivers big setback to Kenny’s debt relief hopes – The Irish Times – Sat, Oct 20, 2012.

Coalition drive for debt relief on banks suffers setback – The Irish Times – Wed, Sep 26, 2012

THE GOVERNMENT’S campaign for debt relief was dealt a fresh blow yesterday as Germany, Finland and the Netherlands said national bodies should remain liable for most bank losses. The three states are insisting that governments remain on the hook for loss-making legacy assets even after any bank rescues by the ESM fund.

This demand, laid down by the countries’ finance ministers, is in apparent defiance of the decision by EU leaders in June to break the link between sovereign and bank debt.

After talks near Helsinki, the ministers said the ESM should assume only a limited burden if it makes direct bank recapitalisations.

The intervention comes as the Government faces persistent difficulty in its pursuit of a deal in Europe to ease the burden of the banking debt.

There is increasing concern in Dublin about German-led backsliding on the promise of a radical new deal to settle the banking crisis in Ireland and Spain. One of the Government’s core objectives is for the ESM to take direct equity stakes in the surviving banks: AIB, Bank of Ireland and Permanent TSB.

“It leaves the situation extremely uncertain from an Irish point of view,” said John Fitzgerald of the Economic and Social Research Institute. “Depending on how it is interpreted, it may or may not allow the Irish government to sell its interests in the surviving Irish banks to the ESM.”

EU leaders agreed in principle three months ago to allow direct bank recapitalisations by the ESM, the basic idea being for the European fund to replace governments as the final backstop on banking losses.

However, German minister Wolfgang Schäuble, Finland’s Jutta Urpilainen and Dutch minister Jan Kees de Jager said they want to curtail the ESM’s exposure to bad debts. “The ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities,” they said.

via Coalition drive for debt relief on banks suffers setback – The Irish Times – Wed, Sep 26, 2012.

via Coalition drive for debt relief on banks suffers setback – The Irish Times – Wed, Sep 26, 2012.

EU steps up efforts to resolve key debt crisis problems –

EU POWERS are pushing to dispose of a series of key questions in the debt crisis by the end of the year in an effort to minimise the risk that the issues will become embroiled in the German election campaign.

The authorities have been buoyed by the European Central Bank’s new bond-buying initiative and the go-ahead for the ESM fund from the highest German court.

They are now pressing Spain to decide quickly on bailout aid and have resolved to rush through complex legislation on a pan-European banking supervisor.

via EU steps up efforts to resolve key debt crisis problems – The Irish Times – Fri, Sep 14, 2012.

via EU steps up efforts to resolve key debt crisis problems – The Irish Times – Fri, Sep 14, 2012.

The Implications of the German Court ruling on the ESM

To morrow in Misebogland The Implications of the German Court ruling on the ESM

The Caveat in the German Courts Ruling on the eurozone’s permanent rescue fund


The court stated German liability to the ESM must not exceed €190bn without parliament’s approval.Now the question is where does the rest of the money come from. If need be does it again end up before the German courts


Upcoming EU Events that will Impact on Ireland

Today the German Constitutional will issue a preliminary ruling on the €500bn ESM fund. If the result is positive, it will need the approval of the Bundestag.

Nothing then happens until Spain and Italy formally request a rescue from the EU bailout funds.

There will be no new deal for Ireland until we have closure on these matters.

The negotiations with Spain and Italy will be tough. The Spanish Finance minister Luis de Guindos has told the creditor bloc that the battle for the survival of the euro will take place in Spain. Some people see this as a threat to walk away from the Euro if pushed too far.

If deals are not stuck over the coming months, the outlook for Ireland just becomes that bit harder.

Our Government appears to rely on a positive outcome, and we suspect that they have no alternative plan if the negotiations prove to be futile.

In the long term, this debt problem will, hopefully be solved resulting in debt stabilizing at a high level. This of course means for the participating bailout nation’s years of austerity.

It of course remains debatable even if the plan comes to fruition, it will correct these very complex problems. However, then again, that is another story.

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